Energy Policy: Green Energy Act Energizes Ontario's Hydro Market

Ontario's Green Energy Act is providing much needed certainty for investments in new hydro projects across the province. The new incentives, coupled with a C$2.3 billion investment in new transmission capacity, are expected to spawn dozens of new projects in northern Ontario.

By Russell W. Ray

Hydropower is on the verge of a renaissance in Ontario, fueled by what experts describe as ground-breaking policy in renewable energy.

Enacted in September 2009, Ontario's Green Energy Act simplified the approval process for renewable energy projects and provides producers a fixed price above market rates for the electricity they produce.

Paul Norris, president of the Ontario Waterpower Association, said the Canadian province is bent on weaning itself off coal-fired generation and that hydropower is going to be the "backbone" of Ontario's power sector. Norris pointed to the passage of the Green Energy Act and a government plan to invest C$2.3 billion (US$2.8 billion) over three years on new transmission and distribution projects in the North, where the potential for hydropower development is abundant.

"It's a very positive step forward in terms of the certainty our business has been looking for," Norris said. "We probably have five or six dozen active hydro applications in Ontario right now. Most of those are at the smaller scale, under 50 MW."

The C$2.3 billion investment in new power line projects will add about 1,500 MW of transmission capacity and is expected to create about 20,000 jobs.

Longer contracts for hydro

The Green Energy Act includes a feed-in tariff (FIT) program, which provides price supports for renewable-energy producers serving Ontario. The Ontario Power Authority (OPA) is administering the new program.

Under the new feed-in tariff rules, hydropower producers are paid 13.1 cents per kilowatt-hour for up to 10 MW. The rate is 12.2 cents for 10 to 50 MW. What's more, the length of the contract is 40 years, well above the 20-year contract for wind and solar power.

"One of the differences is the lifespan of the assets," Norris said. "That longer term made a lot more sense. It's a greater degree of certainty."

For hydro capacity above 50 MW, the price is negotiated individually.

The first round of contracts awarded under the new feed-in tariff rules are expected to produce 2,500 MW of new capacity and will generate more than C$5 billion in investments in manufacturing, design, construction, and installation, according to OPA. Ontario is home to nearly 200 hydroelectric projects, which have a combined capacity of 8,000 MW, about a quarter of Ontario's total capacity. A 2005 study commissioned by the Ontario Waterpower Association showed that the practical potential for hydropower development across Ontario is 5,000 MW.

"We bring something unique to the table," he said. "We bring reliability and responsiveness. And increasingly, we're seeing an understanding that all electrons aren't created equally."

An end to diesel dependency

The Green Energy Act and the investment in new transmission capacity are expected to produce a range of economic and environmental benefits for Aboriginal communities in northern Ontario. In addition to creating new jobs, the added hydropower capacity is certain to replace facilities that use diesel to generate power for more than two dozen Aboriginal communities, Norris said.

"The Green Energy Act has some specific aspirations around Aboriginal communities," he said. "In the North, there are 25 or 26 diesel-dependent Aboriginal communities. The Green Energy Act and other government initiatives have the potential to end that cycle of diesel dependency."

Other key elements of the act include:

— Opportunities for municipalities, First Nation and Metis communities to build, own and operate their own renewable energy projects;

— Programs for municipalities, communities and Aboriginal groups to ensure some project costs can be recovered;

— An academic research chair to examine potential public health effects of renewable energy projects; and

— Home energy audits prior to the sale of homes (unless waived by the buyer).

In addition to creating 50,000 jobs in the next three years, the Green Energy Act is a key element in the government's plan to eliminate coal-fired power by 2014.

Hydropower projects such as the 8-MW Swift Rapids project in Orillia, Ontario, will receive a fixed price above market rates for the electricity they produce, under Ontario's Green Energy Act.

"It is the single largest climate change initiative in Canada," said Natural Resources Minister Donna Cansfield. "The act is contributing to changes in our whole approach to energy and is a crucial component of our plan to become a leading green economy in North America."

The Green Energy Act also includes a feed-in tariff program known as microFIT, which is designed to promote the development of renewable energy projects that generate 10 kW or less. MicroFIT is a simpler and faster process, designed specifically for very small projects. As of Dec. 1, 2009, OPA had received nearly 2,000 microFIT applications.

New law leads to hundreds of contracts

OPA began offering contracts under the new feed-in tariff rules in February 2010. So far, the utility has awarded 694 contracts that represent more than 2,600 MW of new capacity.

"In six short months, the Feed-in Tariff program has delivered strong results and has more than exceeded our expectations," said OPA Chief Executive Officer Colin Andersen.

Of the 694 contracts announced thus far, 50 are waterpower projects. Solar projects accounted for about 90 percent of the contracts.

"These projects are the latest accomplishments of the Green Energy Act, which is making Ontario a place of destination for green energy development, manufacturing, and expertise," said Energy Infrastructure Minister Brad Duguid. "The investment generated by FIT will not only create green jobs, but will also build a coal-free legacy."

Enabling community and aboriginal participation in renewable energy development is a key objective of Ontario's Green Energy Act. Thirty six community and aboriginal projects across the province will receive a first round FIT contract, OPA said.

"Ontario is on its way to becoming an international renewable energy powerhouse," said Rick Smith, executive director of Environmental Defence, an organization that combats climate change. "These new projects will not only have lasting impacts on Ontario's greenhouse gas emissions, but they will help Ontario move towards a green economy by supporting local manufacturing and construction."

The announcement shows that the Green Energy Act is designed to help households and small businesses as well as individuals and First Nations, said Robert Hellier, chairman of the Ontario Sustainable Energy Association.

"Everyone can now participate in generating green energy," Hellier said.

The Green Energy Act is designed to encourage the development of hydropower projects such as the 3-MW Matthias Generating Station on the South Branch of the Muskoka River near Bracebridge, Ontario.

Meanwhile, planning for six core transmission network upgrades are moving forward, including north-south lines from Sudbury to Barrie and Barrie to the Toronto area and an east-west line from Nipigon to Wawa. In addition to increasing the use of renewable power, these power line projects will improve the reliability of Ontario's transmission system and increase energy transfer across the province, OPA said. The new law seeks to bring in new pro-environment investment, create ecologically friendly jobs, and improve the province&apos;s environment. Ontario Energy Minister George Smitherman said the provincial government, under the Green Energy Act, is ensuring the power bill of residents would go down through innovations in pricing for electricity.

Ontario has already brought more than 1,200 MW of new renewable energy on-line since October 2003. New renewable energy projects already in place or under construction in Ontario since 2003 represent a total investment of more than $4.6 billion.